Financing

Cost technique · See it on the map

Runnable here

Arranging outside funding to cover project costs the owner's own cash cannot carry.

When to use it

When project spend will outpace the funding organization's on-hand cash at some point in the timeline, and that gap needs to be closed with borrowed or invested money arranged ahead of time, not discovered mid-project.

When to avoid it

Don't treat financing as a project-management technique when it's really a corporate finance decision above the project manager's authority — arranging it is often someone else's job, but the project manager still needs to know the terms and timing well enough to plan spend around them. Reaching for external financing to paper over a budget that was underestimated, rather than a genuine cash-timing gap, just moves the problem and adds interest to it.

Steps

1. Compare the project's planned spend curve against the funding organization's available cash curve to find where and how large the gap is.
2. Identify financing sources appropriate to the gap's size and duration (short-term credit line versus long-term loan versus investor capital).
3. Confirm the terms: interest or return expectations, repayment schedule, any covenants that constrain how project funds are drawn or spent.
4. Time the financing's availability against the project's spend curve so money is in hand before it's needed, not after.
5. Feed the cost of financing (interest, fees) back into the project's budget as a real project cost.

What it produces

• A financing arrangement with a known draw schedule, cost, and any constraints on project spend.
• A funded spend curve the project can actually execute against without a cash gap.

Common pitfalls

• Treating financing costs (interest, fees) as outside the project budget instead of as real project cost, understating the true BAC.
• Financing terms (covenants, draw conditions) that constrain how or when money can be spent, discovered mid-project instead of during planning.
• Using financing to cover a shortfall caused by underestimation rather than genuine cash-flow timing, deferring a scope or budget conversation the project actually needs.

Worked example

A developer's mixed-use building has a $4.2 million construction budget but the owner's cash on hand covers only the first $1.5 million of spend before lease revenue and equity draws catch up in month nine. The project arranges a construction loan for the $2.7 million gap, drawn in scheduled tranches tied to completed phases, at a rate that adds roughly $95,000 in interest over the build. That $95,000 is added to the project's cost baseline rather than treated as a separate corporate expense.

Where it comes from: this technique is named by the PMBOK Guide, 6th edition. No clause number is recorded for it here — a guessed citation would be worse than none. We could not confirm which numbered PMBOK-6 clause defines it, so it is left uncited rather than cited by guess.